Businessweek Archives

Paternalism Pays Off

Socking money away in a 401(k) plan is about to get easier for entrepreneurs. That's because the feds have carved a shortcut around "discrimination tests" that trip up many small companies.

Under the old rules, the highest-paid employees (which usually include the owner) were unable to make a full contribution to a 401(k) plan unless a certain percentage of lower-paid employees also participated. The goal was to encourage employers to offer a plan that was attractive to everyone. But in practice, low-paid employees proved reluctant to sign up.

The solution: automatic enrollment. Instead of persuading people to sign up, you can simply enroll all your workers in an IRS-approved plan and start making deductions on their behalf--unless they specifically opt out. Few do. This all but ensures you'll pass the regulatory test so you can max out your own account.